CEO Rents

Why is the demand curve for CEOs (and therefore thier wages) so much higher? What are the skills they have that everyone else has? I think there’s two things that drive the rents (in econ-speak) for CEO’s.



  1. The first, and perhaps more obvious thing, is that CEOs supposedly have a great deal of responsibility. That may have been true in the past, but I don’t think that’s a big explanation right now. G.W. Bush is an excellent example – all the companies he headed needed bailing out or otherwise did poorly. Which brings us to #2:
  2. The social connections and reputation of that CEO. Bush Jr. had the pull with family and friends to get those companies bailed out – and therefore was a goodchoice as CEO, at least from the point of the view of the company. Where he’s a bad choice is from the point of view of the rest of us.

Such a system – where the social connections of the CEO have such influence – keeps the social class structure intact, and even strengthens it greatly. Since the quasi-meritocracy that the rest of USians work under doesn’t apply here, there’s practically no way to break into that upper crust circle.



Ironically, this would seem to work against the free market that such types as GW espouse so often, wouldn’t it?





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